PRU A4.2 PRU A4.2 Credit conversion factors (CCFs) for calculating Exposures
CCFs for off-balance sheet CR Exposures
PRU A4.2.1 PRU A4.2.1
The applicable CCFs for off-balance sheet CR Exposures are provided in the table below.
Description of Off-balance Sheet Item CCF (a) Direct credit substitutes 100% (b) Transaction-related contingent items 50% (c) Short-term self-liquidating trade-related contingent items (applicable to both issuing and confirming banks) and commitments to underwrite debt and equity Securities 20% (d) Note issuance facilities and revolving Underwriting facilities 50% (e) Transactions, other than SFTs, involving the posting of Securities held by the Authorised Person as Collateral 100% (f) Asset sales with recourse, where the Credit Risk remains with the Authorised Person 100% (g) Other commitments with certain drawdown 100% (h) Other commitments(i) with an Original Maturity of more than one year(ii) with an Original Maturity of one year or less(iii) which are unconditionally cancellable at any time by the Authorised Person without prior notice, or that effectively provide for automatic cancellation due to deterioration in an obligor's creditworthiness 50%
Guidance1. In cases where there is an undertaking to provide a commitment on another off-balance sheet Exposure, an Authorised Person should apply the lower of the applicable CCFs. Examples of direct credit substitutes include general guarantees of indebtedness, standby letters of credit serving as financial guarantees for loans and Securities, and acceptances (including endorsements with the character of acceptances). Examples of transaction-related contingent items include performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions.2. Documentary credits collateralised by the underlying shipments are an example of short-term self-liquidating trade-related contingent items. In respect of item (f) in the table above, the terms of the agreement should be such that there is no substantial transfer of all risks and rewards of ownership to the Counterparty. Other commitments with certain drawdown would include forward purchase, forward Deposits and partly paid Securities. Formal standby facilities and credit lines are examples of other commitments, referred to in item (h) of the table above.3. In respect of item (h)(iii) in the table above, an Authorised Person, if required to by the Regulator, should be able to demonstrate that it actively monitors the financial condition of the obligor, and that its internal control systems are such that it is able to cancel the facility upon evidence of a deterioration in the credit quality of the obligor.
CCFs for off-balance sheet SE Exposures
PRU A4.2.2 PRU A4.2.2(1) The applicable CCFs for off-balance sheet SE Exposures are provided in the table below.
Description of off-balance sheet item CCF (a) Unrated eligible liquidity facilities 50% (b) Eligible Servicer cash advance facilities 0% (c) Others 100%(2) An Authorised Person must notify the Regulator if it intends to provide eligible Servicer cash advance facilities and when there is a drawdown.
Eligible Servicer cash advance facilities refers to undrawn Servicer cash advances or facilities that are contractually provided for and unconditionally cancellable without prior notice, so long as the Servicer is entitled to full reimbursement and this right is senior to other claims on cash flows from the underlying Exposures.